This HSBC float idea looks to be full of holes

Tuesday 10 December 2013 12:45 BST

P37 Stuart Gulliver AFP/Getty

Talk that HSBC might spin off its UK High Street banking business ranks only slightly higher in the credibility ratings than the 1987 idea that Saatchi & Saatchi might merge with what was then Midland Bank.

In fact it was HSBC that eventually took over Britain’s fourth-largest clearer in 1992.

Why on earth would it now want to sell off part of that business through a separate stock-market flotation?

The argument goes that this would be a neat resolution to Sir John Vickers’ recommendation that UK retail banking operations should be ring-fenced from their riskier investment banking arms.

That is something which is not going to be implemented until 2019, so HSBC, under chief executive Stuart Gulliver, has plenty of time to come up with a solution.

It appears that the bank’s executives and top shareholders probably discussed a spin-off about a year ago, and nothing much has come of it since. It sounds more like these were “what if?” conversations as opposed to “we have a cunning plan” revelations.

HSBC Bank Plc, the UK subsidiary, is not quite the neat High Street package one might think. It includes big chunks of European business, and some wealth management and commercial banking. Of the £1.9 billion profits this business made in the first half of 2012, only around a half came from what could be ring-fenced assets. Hence the potential valuation of some £20 billion.

The costs of separating out these businesses to create a floatable High Street bank would be enormous. Lloyds has spent £1.4 billion on Project Verde, albeit that includes the costs of the failed sale to Co-op Bank and the setting-up of TSB. Would HSBC shareholders really want it spending that kind of money?

At the same time, the UK business is currently one of HSBC’s best-performing areas. As the UK economic recovery takes hold that translates into better profits for our domestic banks. Why would HSBC actually want to sell 30% of that business at a time when it is doing so well?

Then there is the argument that the bank would like to escape the burgeoning UK bank levy, the looming restrictions on paying massive bonuses and the growing costs of regulation in this country. That could only be done if it redomiciled the rest of the bank outside the UK — in Hong Kong, presumably.

But surely doing that would simply mean that what is left of HSBC outside the UK would look remarkably like Standard Chartered. And who would want to look like that right now?